No Further Action (NFA) letters have become an important tool in transactions involving contaminated properties. Contracting party often use issuance of an NFA letter has the mechanism for establishing that a party has satisfied its obligations under an agreement. Issuance of an NFA letter often also operates as a release of statutory liability and may also confer contribution protection to the remediating party, its successors and assigns.
While the NFA letter may represent a determination by a regulatory agency that a particular party has satisfied its obligations to remediate a release of hazardous substances under an environmental statute, the NFA letter usually will not operate to cut off potential common law toxic tort claims for bodily injury or property damage. This is particularly so when the regulatory agency has approved a risk-based cleanup that allows residual contamination to remain. A recent opinion of the federal district court for the northern district of California demonstrates this point.
In Barrous v. BP P.L.C., 2011U.S. Dist. LEXIS 113597 (N.D.Cal. 10/3/11), the plaintiffs owned a restaurant property that had been impacted by an adjacent gas station. Soil contamination was first detected at the gas station in 1992 and again in 1994 when the station was sold. After groundwater contamination was discovered in 1998, the Santa Clara Valley Water District (“SCVWD”) required defendant BP Products to implement a corrective action investigation. In late 1999, BP Products informed Plaintiffs that the restaurant property “might be” contaminated and then entered into an agreement with the plaintiffs to monitor groundwater contamination at the restaurant property. The Access Agreement contained a “Value Protection” provision where BP Products agreed to indemnify any lender, lessee or purchaser of the restaurant property from liability resulting from contamination caused by BP Products.
In 2001, the SCVWD issued a Clean Up and Abatement Order requiring BP Products to complete interim remedial actions to reduce contamination. When BP Products failed to comply with the order, the Santa Clara County District Attorney’s Office charged BP Products with violations of the California Health and Safety Code. BP Products, the SCVWD and the District Attorney’s office then entered into a stipulated judgment under which BP Products was required to immediately implement a Corrective Action Plan (CAP). The SCVWD monitored the cleanup effort until 2004 it transferred oversight to the Santa Clara County Department of Environmental Health (“DEH”). In 2005, Conoco agreed to be the lead responsible party for managing the cleanup and in 2009, BP Products paid Conoco to take over its remaining remediation obligations under the CAP. Later that year, the DEH concluded that no further active remediation was required and allowed the site to transition to groundwater monitoring. In 2011, the DEH issued a no further action letter.
In 2010, the plaintiffs filed a lawsuit alleging nuisance, trespass, and negligence claims stemming from the contamination of the restaurant property, contract claims for defendants’ breach of and interference with the Access Agreement, and punitive damages. Among the damages sought by the plaintiffs were lost business opportunities from their inability to finance redevelopment of the property on three occasions because of the contamination, diminution in property value and restoration costs to bring the property to its pre-contaminated condition.
After preliminary motion practice that narrowed the contract claims, the defendants filed a motion for summary judgment. For the property diminution claim, the court began by explaining that plaintiffs must prove that the contamination of their property was a permanent injury which required a showing that the harm was not capable of being abated. The defendants asserted that the DEH NFA letter was evidence that the harm had been abatable, and therefore the plaintiffs could not recover any diminution of the value. Plaintiffs countered with an expert report stating that the groundwater contamination was likely to persist for decades. The plaintiffs’ expert further stated that it was not uncommon for the DEH to reopen a site after a No Further Action letter has been issued. The court held that under California law, the plaintiffs only had to establish that there was a “reasonably deductible inference” that the contamination at the Site was not properly remediated. Based on the plaintiff’s expert report and the fact that contamination levels remain above those initially proposed in the CAP, the court found the plaintiffs had met this burden and denied defendants’ motion for summary judgment as to Plaintiffs’ tort claims for prospective damages.
The plaintiffs also sought punitive damages on the grounds that BP did not take remedial actions for eight years until the company was ordered to do so by a state court pursuant to the stipulated judgment. The court said that California courts have found punitive damages awards appropriate for unintentional conduct “showing complete lack of concern regarding the harmful potential-the probability and likelihood of injury” or a “conscious disregard of the rights and safety of others.” The court ruled that a reasonable jury could find that BP’s inaction for nearly ten years exhibited clear and convincing evidence of a “complete lack of concern regarding the harmful potential” of the contamination at the gas station. Therefore, the court declined to find that BP’s conduct cannot constitute malice as a matter of law. However, the court found there was no material issue of fact about Conoco’s conduct and granted the company’s motion for summary judgment on the punitive damages claim.
Plaintiffs also sought to pierce the corporate veil of BP Products immediate corporate parent, BP North America, as well as its “grandparent”, BP p.l.c. The court found there was a genuine issue of material fact whether there was an agency relationship between BP Products and, BP North America. The court said that a reasonable jury could infer that although BP Products was the “responsible party of record” charged with overseeing the cleanup, BP North America exerted some control over day-to-day operations at the contaminated site. However, the court said there was no evidence that that BP p.l.c. was sufficiently involved in the remediation to breach its corporate veil.